Principal Issues: [TaxInterpretations translation] Can the Minister reassess in a particular situation?
Position: No
Reasons: The CRA has no legislative authority to reassess a section 111 deduction in respect of a loss incurred for a subsequent taxation year where the taxation year in which the loss was deducted is outside the extended reassessment period under paragraph 152(4)(b).
February 9, 2011
Montreal TSO, Headquarters
Tax Technical Interpretation Services Income Tax Rulings
Directorate
Isabelle Landry,
M.Fisc.
450-623-0193
Attention: Mr. Michel A. Robert
2010-038849Reassessment period
This memorandum is in response to your email of November 24, 2010, in which you asked for our comments respecting your understanding of the application of subparagraph 152(4)(b)(i).
Unless otherwise indicated, all legislative references in this memorandum are to the provisions of the Income Tax Act.
Specifically, you indicated in your email that, based on your understanding, the Canada Revenue Agency ("CRA") could reassess a loss for a particular taxation year to reduce a loss incurred for that year until the day that is 3 years after the expiration of the "normal reassessment period" applicable to the particular taxation year in accordance with subparagraph 152(4)(b)(i). However, you submit that in such a situation, the CRA would remain able to reassess the prior taxation year in which the loss was deducted where that prior year is outside the extended reassessment period provided for in subparagraph 152(4)(b)(i).
Our Comments
Subsection 152(4) provides that the Minister may assess, reassess or make an additional assessment of tax for a taxation year, together with interest or penalties, or notify in writing that no tax is payable, provided that such an assessment is made before the expiration of the "normal reassessment period" defined in subsection 152(3.1). Where the CRA wishes to reassess outside the normal reassessment period, it may do so only in the specific circumstances set out in paragraphs 152(4)(a) to (d). For example, the CRA may, under subparagraph 152(4)(b)(i) and in accordance with paragraph 152(6)(c), reassess a particular taxation year in respect of which a taxpayer has deducted a loss incurred in a subsequent taxation year under section 111 (a loss carryback) before the day that is 3 years after the end of the "normal reassessment period" applicable to the particular taxation year.
Consequently, the CRA may, in the situation you have raised, reassess the particular taxation year (the taxation year in which a loss was incurred) only to the extent that the reassessment is made before the normal reassessment period for the particular taxation year expires. Indeed, the CRA has no authority under the Act to reassess outside the normal reassessment period provided under subsection 152(3.1) that is applicable to the particular taxation year. The extended reassessment period under subparagraph 152(4)(b)(i) applies only to an assessment or reassessment made under subsection 152(6) of a taxation year for which, for example, a deduction under section 111 in respect of a loss incurred for a subsequent taxation year is claimed. The CRA also has no authority under the Act to reassess after the day that is after the end of the extended reassessment period under paragraph 152(4)(b) for a taxation year in which a loss carryback was made to reduce the amount of the section 111 deduction claimed in respect of a loss incurred in a previous year.
We hope that our comments are of assistance.
Best regards,
Guy Goulet CA M. Fisc.
Manager
for the Director
Ontario Corporations Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.